The FTX cryptocurrency exchange, which declared bankruptcy last year, has been shown to have had some of the poorest cybersecurity practices imaginable, according to its bankruptcy report. The report states that the exchange had no cybersecurity staff, failed to keep users’ crypto assets in cold storage, and left cryptographic keys and seed phrases stored in plain text documents that were accessible by staff.
Despite being valued at up to $32bn, FTX never hired a CISO (chief information security officer) to manage its risks for them. Instead, the report found that the company relied on two of the company’s software developers who did not have formal training in security.
FTX’s leadership had “little use of cold storage” except in Japan, where it was “required by regulation to use” it, according to the report. The company reportedly kept “virtually all” of its customers’ assets in hot wallets instead of cold storage. In crypto, the key or seed phrase is the password that gets the user inside their wallet.
Industry standards compel crypto exchanges to keep that information encrypted and safe from prying eyes, but FTX apparently kept keys that could open wallets worth tens of millions of dollars unencrypted, in plaintext, lying around in AWS.
The report also revealed that the FTX Group made little use of cold storage and lied when asked by third parties to describe the extent to which it used it. The company told investors that it kept a small amount of crypto in hot wallets, while the rest was “stored offline in air gapped encrypted laptops, which are geographically distributed.”
However, the report shows this was untrue. Private keys and seed phrases used by FTX.com, FTX.US, and Alameda were stored in various locations throughout the FTX Group’s computing environment in a disorganized fashion, using a variety of insecure methods, without any uniform or documented procedure.
Last November, FTX suffered a massive cyberattack in which someone made off with $432 million in assets, a bundle of digital cash that is still unaccounted for. The latest bankruptcy report reveals that the company failed to implement basic, widely accepted security controls to protect crypto assets. “The FTX Group failed to implement basic, widely accepted security controls to protect crypto assets.
Each failure was egregious in the context of a business entrusted with customer transactions,” the filing states.
